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Q: What about looking at Silicon Valley from a global perspective? When you look at a country like China that is growing so quickly -- offering companies extremely cheap labor and manufacturing costs -- how do you compete?

A: It's incredibly difficult. We have to separate the issues around global competitiveness in terms of why companies would be located in China or India or Russia or other points around the globe for sound business reasons, and I'll mention a few of those: access to customers, supply chain, raw materials, etc., which are the traditional reasons why companies would be located around the globe and they are solid reasons.

Then there are other reasons around cost that we can't ignore. A fully loaded engineer in Silicon Valley costs X and it's about a tenth of X in China and close to that in India. And they are often as well educated, entrepreneurial and as hungry as the people who graduate here. Those are tremendous challenges and are one of the reasons why companies continue to place facilities and people around the globe.

Q: How far up the intellectual food chain does this outsourcing go?

A: It is moving further and further up the value chain. Research and development is done primarily here (in the valley), but even that, as it follows manufacturing, is going around the globe as well. Those are very real challenges that are of deep concern to many of our executives. That again diminishes that middle class that has always been the essence of California's and America's strength.

Q: So are those really challenges?

A: Unequivocally, yes. Not only to the CEOs in the boardroom, but to any family you talk to in their living room. What we hear time after time from CEOs as well as frontline employees is how incredibly difficult it is to come here and stay here. That truly does have an impact on a company's bottom line when the cost differential is so much higher here than it is in other regions around the state, nation and globe, or the ability to recruit top talent is also impacted.

You mentioned housing. It probably is the top concern we hear about in Silicon Valley from both CEOs and employees in terms of local issues. Does that have an impact? Let me put a finer point on it.

Hewlett-Packard and Dell are the top two computer-makers in the world. Corporate headquarters for HP are located in Palo Alto and Dell is in Round Rock, Texas. Obviously, they both have people and facilities around the globe.

In those two communities where their corporate headquarters are and where a lot of research and development takes place, the median resale price for a home in Palo Alto is about $1.6 million. In Round Rock, Texas, it's about $180,000, except the home and property are bigger.